Generali’s Horse Capital I motor liability ILS upsizes to €255m

by Artemis on December 16, 2016

Assicurazioni Generali will secure an upsized €255 million (approx US$266m) of fully collateralised reinsurance cover for motor third-party liability loss ratio deterioration, after its innovative Horse Capital I DAC ILS or catastrophe bond like transaction grew by 42% at pricing.

Generali is set to very successfully leverage the catastrophe bond structure and insurance-linked securities (ILS) investors to gain a multi-year collateralised source of reinsurance protection against deteriorating motor third-party liability claims ratios within its European businesses.

It’s the first time a motor linked ILS transaction has come to market in many years and the first liability or casualty catastrophe bond issued in over a decade.

When the Horse Capital I motor liability ILS deal began marketing it was just €180 million in size, with three tranches offering investors different risk and return profiles, all sized at €60 million each.

Earlier this week we wrote about a potential upsize of the Horse Capital I transaction, as Generali’s target rose to €210 million to €240 million of cover, with each of the three tranches slated to achieve somewhere between €70m and €80m each. At the same time the pricing guidance for each tranche had been shifted and fixed near the mid and upper levels of initial guidance.

Now, sources explained to Artemis that Generali has taken advantage of strong investor demand for the Horse Capital I ILS notes and elected to upsize the transaction beyond its revised target, with the deal now set to complete at €255 million, which is 42% larger than where it began its life.

It’s testament to the ability of ILS fund managers and institutional investors in ILS to understand new types of risk that they have gained such appreciation and comfort in the Horse Capital I transaction to enable it to upsize so much.

The fact that this transaction has been so readily accepted by ILS investors, despite it being the first liability related cat bond type transaction in years, could help to stimulate interest from other sponsors in bringing similar ILS deals to market.

So the Horse Capital I DAC ILS transaction is set to close with three tranches of notes offering Generali €255 million of collateralised reinsurance protection. All three tranches have outgrown the revised target and settled offering Generali three €85 million layers of reinsurance protection.

The least risky Class A notes pricing has settled at the mid-point of guidance at 4%. The middle risk Class B layer of the transaction has seen pricing settled at just at 6.25%, below the mid-point from where it launched. Finally, the most risky Class C tranche saw pricing settle at the upper end of the initial range at 12%.

The success of this transaction, which is clear from the demand seen and its upsizing, is positive for the ILS and catastrophe bond market at this time when ILS funds are becoming increasingly sophisticated and expansive in their underwriting.

If other motor insurers saw an opportunity to secure reinsurance against deterioration in their loss ratios we could see the ILS market benefiting from a new diversifying peril. Loss ratio triggers could also be applied in other lines of business perhaps, ultimately helping the ILS market to further expansion.

The Horse Capital I ILS transaction completes on Monday.

You can read all about the Horse Capital I DAC ILS deal in the Artemis Deal Directory.

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